Petron, Hengyuan slip on fears of global recession, tight supply

Petron, Hengyuan slip on fears of global recession, tight supply
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KUALA LUMPUR (July 4): Petron Malaysia Refining & Marketing Bhd and Hengyuan Refining Company Bhd were among the top losers in morning trade on Monday (July 4) as fears of a global recession weighed on the market as supply remained tight amid lower Organization of the Petroleum Exporting Countries (OPEC) output, unrest in Libya and sanctions on Russia. 

Bursa Malaysia’s Energy Index, which tracks oil and gas companies’ share price, had declined by 0.37% or 2.55 points to 681.93 from last Friday’s 684.480. 

At 10.40am, Petron — the 10th loser — had slipped 13 sen or 2.35% to RM5.40, with some 103,400 shares changing hands. Based on the latest share price, the company was valued at RM1.46 billion. 

Hengyuan slipped 2.58% or 12 sen to RM4.53, giving it a market capitalisation of RM1.36 billion.     

While recession fears have weighed on the market over the past two weeks, supply concerns linger, preventing steeper price falls, according to a Reuters report on Monday.

“Brent crude futures had slipped 35 cents, or 0.3%, to US$111.28 (about RM490.74) a barrel at 0016 GMT, having jumped 2.4% last Friday. US West Texas Intermediate crude futures similarly dropped 32 cents, or 0.3%, to US$108.11 a barrel after climbing 2.5% last Friday,” said Reuters

While global oil demand is likely to strengthen quarter-on-quarter as China relaxes its restrictions, crude oil prices could be dragged by increasing concern over global recession risks, said RHB Research in a note on Monday. 

“Near-term oil prices should be supported by continuously tight supply in the market. However, we maintain a conservative outlook, with a relatively lower year-on-year projection in 2023-2024 due to the higher possibility of an economic slowdown in that period.

“For the time being, we think that the balance of risks is skewed towards a plain vanilla US recession, accompanied by a slowdown in global growth in 2023, but with limited risks of an economic or financial crisis environment arising in 2022-2023,” said the research house. 

RHB increased its 2022 Brent crude oil price forecast to US$108/bbl from US$104/bbl, while keeping its 2023-2024 projections at US$85/bbl and US$75/bbl respectively. 

Nonetheless, the research house kept its "overweight" stance on the sector, with Petronas Chemicals Group Bhd, Bumi Armada Bhd, Yinson Holdings Bhd, PTT Exploration and Production and Bangchak as its top picks. 

“We believe that upstream service providers (drillers and maintenance-related) should benefit from a ramp-up in activities and increased domestic capex allocations, coupled with better service rates ahead. 

“Exploration and production, selective refineries and petrochemical companies should continue to enjoy strong earnings, while riding on stronger product prices,” added RHB.

Surin Murugiah